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SGMO > SEC Filings for SGMO > Form 10-Q on 29-Jul-2014All Recent SEC Filings

Show all filings for SANGAMO BIOSCIENCES INC

Form 10-Q for SANGAMO BIOSCIENCES INC


29-Jul-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements containing the words "believes," "anticipates," "expects," "continue," and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should read the following discussion and analysis along with the financial statements and notes attached to those statements included elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2013 as filed with the SEC.

Overview

We are a clinical stage biopharmaceutical company focused on the research, development and commercialization of engineered DNA-binding proteins for the development of novel therapeutic strategies for unmet medical needs. Our current mission is to develop ZFP Therapeutics®, or human therapeutics based on our proprietary zinc finger DNA-binding protein (ZFP) technology, through early stage clinical testing, strategically partner with biopharmaceutical companies at points of value inflection and have the partner execute late-stage clinical trials and commercial development. In the long-term, our goal is to integrate marketing and development operations and to capture the value of late-stage and commercial ZFP Therapeutic products for ourselves.

We and our licensed partners are the leaders in the research, development and commercialization of ZFPs, a naturally occurring class of proteins. We have used our knowledge and expertise to develop a proprietary technology platform. ZFPs can be engineered to make ZFP nucleases (ZFNs), proteins that can be used to modify DNA sequences in a variety of ways and ZFP transcription factors (ZFP TFs), proteins that can be used to turn genes on or off. As ZFPs act at the DNA level, they have broad potential applications in several areas, including human therapeutics, plant agriculture and research reagents, as well as production of transgenic animals and cell-line engineering.

The main focus for our company is the development of novel human therapeutics and we are building a pipeline of ZFP Therapeutics. Our lead ZFP Therapeutic, SB-728-T, a ZFN-modified autologous T-cell product for the treatment of HIV/AIDS, is the first therapeutic application of our ZFN technology and is being evaluated in a Phase 2 clinical trial in HIV-infected subjects. Through our wholly-owned subsidiary Ceregene, which we acquired in October 2013, we are conducting a Phase 2 clinical trial for a therapeutic program, CERE-110, an adeno-associated virus ("AAV") expressing nerve growth factor for the treatment of Alzheimer's disease (AD).

In January 2014, we entered into a collaborative partnership with Biogen Idec, Inc. ("Biogen") to research, develop and commercialize our preclinical ZFP Therapeutic development program in hemoglobinopathies, targeting sickle cell disease ("SCD") and beta-thalassemia. We also have a collaborative partnership with Shire International GmbH, formerly Shire AG ("Shire"), to research, develop and commercialize certain of our preclinical ZFP Therapeutic development programs, including programs in hemophilia, Huntington's disease ("HD") and other monogenic diseases. We have proprietary preclinical programs in several lysosomal storage disorders ("LSDs"). In addition, we have research stage programs in other monogenic diseases, including certain immunodeficiencies, as well as central nervous system ("CNS") disorders and cancer immunotherapy.

We believe the potential commercial applications of ZFPs are broad-based and we have entered into strategic partnerships in fields outside human therapeutics to facilitate the sale or licensing of our ZFP platform as follows:

• We have a license agreement with the research reagent company Sigma-Aldrich Corporation (Sigma). Sigma has the exclusive rights to develop and market high value laboratory research reagents based upon our ZFP technology as well as ZFP-modified cell lines for commercial production of protein pharmaceuticals and ZFP-engineered transgenic animals. Sigma is marketing ZFN-derived gene editing tools under the trademark CompoZr®.

• We have a license agreement with Dow AgroSciences, LLC (DAS), a wholly owned subsidiary of Dow Chemical Corporation. Under the agreement, we have provided DAS with access to our ZFP technology and the exclusive rights to use it to modify the genomes or alter protein expression of plant cells, plants or plant cell cultures. DAS markets our ZFN technology under the trademark EXZACTTM Precision Technology. We have retained rights to use plants or plant-derived products to deliver ZFP TFs or ZFNs into human or animals for diagnostic, therapeutic or prophylactic purposes.

We have incurred net losses since inception and expect to incur losses in the future as we continue our research and development activities. To date, we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborations and research grants.

For the three months ended June 30, 2014, we incurred a consolidated net loss of $7.0 million, or $0.10 per share, compared to a net loss of $5.5 million, or $0.10 per share, for the same period in 2013. As of June 30, 2014, we had cash, cash equivalents, marketable securities and interest receivable totaling $236.7 million compared to $131.8 million as of December 31, 2013. As of June 30, 2014, we had an accumulated deficit of $316.7 million.


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Our revenues have consisted primarily of revenues from our corporate partners for ZFNs and ZFP TFs, contractual payments from strategic partners for research programs and research milestones, and research grant funding. We expect revenues will continue to fluctuate from period to period, and there can be no assurance that new collaborations or partner funding will continue beyond their current terms.

In the development of our ZFP technology platform, we are focusing our resources on higher-value ZFP Therapeutic product development and less on our non-therapeutic applications. Development of novel therapeutic products is costly and is subject to a lengthy and uncertain regulatory process by the FDA. Our future products will be gene-based therapeutics. Adverse events in both our own clinical program and other programs may have a negative impact on regulatory approval, the willingness of potential commercial partners to enter into agreements and public perception.

Critical Accounting Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC.

Results of Operations

Three and six months ended June 30, 2014 and 2013

Revenues



                                                      Three months ended June 30,                                  Six months ended June 30,
                                               (in thousands, except percentage values)                    (in thousands, except percentage values)
                                            2014              2013          Change         %            2014              2013           Change        %
Revenues:
Collaboration agreements                 $     9,721       $    6,157       $ 3,564         58 %     $    17,289       $    10,240       $ 7,049        69 %
Research grants                                  664              777          (113 )      (15 %)          1,212             1,317          (105 )      (8 %)

Total revenues                                10,385       $    6,934       $ 3,451         50 %          18,501       $    11,557       $ 6,944        60 %

Total revenues consist of revenues from collaboration agreements and research grants. We anticipate revenues over the next several years will primarily be derived from our collaboration agreements with Biogen, Shire, Sigma and DAS.

Revenues from our corporate collaboration agreements were $9.7 million for the three months ended June 30, 2014, compared to $6.2 million in the corresponding period in 2013. The $3.5 million increase in collaboration agreements revenues was primarily due to an increase of $4.7 million in revenues related to our collaboration and license agreements with Shire and Biogen, partially offset by a decrease of $1.3 million in revenues related to our agreement with Sigma. The revenues from Shire included partial recognition of an upfront payment of $13.0 million and revenues from research services. The revenues from Biogen included partial recognition of an upfront payment of $20.0 million and revenues from research services. Research grant revenues were approximately $0.7 million for the three months ended June 30, 2014, compared to $0.8 million in the corresponding period in 2013.

Revenues from our corporate collaboration agreements were $17.3 million for the six months ended June 30, 2014, compared to $10.2 million in the corresponding period in 2013. The increase of $7.1 million in collaboration agreement revenues was primarily attributable to a $3.5 million increase in revenues related to our agreement with Shire, a $3.9 million increase in revenues related to our agreement with Biogen and an increase of $1.0 million for royalty payment obligations under our license agreement with Open Monoclonal Technology, Inc. (OMT), partially offset by a $1.3 million decrease in revenues related to our agreement with Sigma. Research grant revenues were $1.2 million for the six months ended June 30, 2014, compared to $1.3 million in the corresponding period in 2013.


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Operating Expenses



                                                            Three months ended June 30,                                 Six months ended June 30,
                                                     (in thousands, except percentage values)                   (in thousands, except percentage values)
                                                  2014              2013           Change        %           2014              2013           Change        %
Operating expenses:
Research and development                            13,430       $     9,278       $ 4,152        45 %         25,463       $    17,498       $ 7,965        46 %
General and administrative                           3,972             3,124           848        27 %          7,616             6,432         1,184        18 %
Change in fair value of contingent liability            30                 0            30       100 %             80                 0            80       100 %

Total expenses                                      17,432       $    12,402       $ 5,030        41 %         33,159       $    23,930       $ 9,229        39 %

Research and development

Research and development expenses consist primarily of salaries and personnel related expenses, including stock-based compensation, laboratory supplies, preclinical and clinical studies, manufacturing expenses, allocated facilities expenses, subcontracted research expenses and expenses for technology licenses. We expect to continue to devote substantial resources to research and development in the future and expect research and development expenses to increase in the next several years if we are successful in advancing our HIV/AIDS program in the clinic and if we are able to move our earlier stage ZFP Therapeutic product candidates into clinical trials. We also expect that expenses related to research performed under our collaboration and license agreements with Biogen and Shire will increase our research and development expenses during the terms of the agreements. Pursuant to the terms of the agreements with Biogen and Shire, future expenses for research activities under the collaboration will be reimbursed, including employee and external research costs related to the programs. The reimbursement for these services will be recognized as revenue as the expenses are incurred and collection is reasonably assured.

Research and development expenses were $13.4 million for the three months ended June 30, 2014, compared to $9.3 million in the corresponding period in 2013. The increase of $4.1 million in research and development expenses was primarily due to an increase of $3.3 million in external expenses, lab supplies and other expenses related to our hemophilia, beta-thalassemia and Huntington's disease programs, $0.4 million in stock-based compensation expense and $0.4 million in salaries and benefits.

Research and development expenses were $25.5 million for the six months ended June 30, 2014, compared to $17.5 million in the corresponding period in 2013. The increase of $8.0 million in research and development expenses was primarily due to an increase of $6.1 million in external expenses, lab supplies and other costs related to our hemophilia, hemoglobinopathies and Huntington's disease programs, $0.8 million in stock-based compensation expense, $0.8 million in salaries and benefits and $0.4 million in licenses, partially offset by a decrease of $0.2 million in clinical trial and manufacturing expenses.

General and administrative

General and administrative expenses consist primarily of salaries, benefits and other expenses for executive, finance and administrative personnel, stock-based compensation expenses, professional fees, allocated facilities expenses, patent prosecution expenses and other general corporate expenses. As we pursue clinical and commercial development of our therapeutic programs, we expect the business aspects of the Company to become more complex. In the future we may be required to add personnel and incur additional expenses related to the maturity of our business.

General and administrative expenses were $4.0 million for the three month period ended June 30, 2014 and $3.1 million for the corresponding period in 2013. The increase was primarily related to an increase of $0.3 million in stock-based compensation expense, $0.2 million in salaries and benefits and $0.2 million in professional service expense.

General and administrative expenses were $7.6 million for the six month period ended June 30, 2014 and $6.4 million for the corresponding period in 2013. The increase was primarily related to an increase of $0.5 million in stock-based compensation expense, $0.4 million in professional fees expense and $0.2 million in salaries and benefits.

Liquidity and Capital Resources

Liquidity

Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborators and strategic partners and research grants.

As of June 30, 2014, we had cash, cash equivalents, marketable securities and interest receivable totaling $236.7 million compared to $131.8 million as of December 31, 2013 with the increase primarily attributable to the completion of an underwritten


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public offering of the Company's common stock in March 2014, in which 4,444,444 shares of Sangamo common stock were sold at a public offering price of $22.50 per share. The net proceeds to the Company from the sale of shares in this offering, after deducting underwriting discounts and commissions and other offering expenses, were $93.8 million. Additionally, we received an upfront license fee of $20.0 million from Biogen pursuant to our collaboration and license agreement.

Our most significant use of capital pertains to salaries and benefits for our employees and external development expenses, such as manufacturing and clinical trial activities, related to our ZFP Therapeutic programs. Our cash and investment balances are held in a variety of interest bearing instruments, which can include obligations of U.S. government agencies, U.S. treasury debt securities, corporate debt securities, commercial paper securities and money market funds. Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity.

Under our agreement with Shire, we received an upfront license fee of $13.0 million. Shire will reimburse us for our costs incurred in connection with research and development activities conducted by us. We are also eligible to receive milestone payments based on our achievement of specified research, regulatory, clinical development, commercialization and sales milestones, which depends upon ours and Shire's ability to continue to progress our programs under collaboration. We will also be eligible to receive royalty payments that are a tiered double-digit percentage of net sales of products developed under the collaboration, if any.

Under the agreement with Biogen, we received an upfront license fee of $20.0 million. Biogen will reimburse us for our costs incurred in connection with research and development activities conducted by us. In addition, we are eligible to receive development milestone payments upon the achievement of specified regulatory, clinical development and commercialization milestones. We will also be eligible to receive incremental royalties for each licensed product that are a tiered double-digit percentage of annual net sales of such product, if any.

Cash Flow

Operating activities. Net cash provided by operating activities for the six months ended June 30, 2014 was $2.8 million, while cash used in operating activities was $13.3 million for the six months ended June 30, 2013. Net cash provided by operating activities for the six months ended June 30, 2014 primarily reflected the increases in deferred revenues related to our collaboration agreement with Biogen, accounts payable and stock-based compensation, partially offset by the net loss for the period as well as an increase in accounts receivable and a decrease in accrued compensation. Net cash used in operating activities for the six months ended June 30, 2013 primarily reflected the net loss for the period and the decrease in deferred revenues related to our collaboration agreement with Shire, partially offset by stock-based compensation and other non-cash expenses included in net loss.

Investing activities. Net cash used in investing activities for the six months ended June 30, 2014 and 2013 was $16.9 million and $0.5 million, respectively. Cash flows from investing activities for both periods primarily related to purchases and maturities of investments.

Financing activities. Net cash provided by financing activities for the six months ended June 30, 2014 and 2013 was $103.2 million and $4.1 million, respectively. The increase for the six month period ended June 30, 2014 was primarily attributable to $93.8 million in net proceeds from the public offering of the Company's common stock completed in March, 2014, as well as proceeds from the issuance of common stock upon exercise of stock options. Net cash provided by financing activities for the six months ended June 30, 2013 was primarily attributable to proceeds from the issuance of common stock upon exercises of stock options.

Operating Capital and Capital Expenditure Requirements

We anticipate continuing to incur operating losses for at least the next several years. While our rate of cash usage may increase in the future, in particular to support our product development endeavors, we believe that the available cash resources as well as funds received from corporate collaborators, strategic partners and research grants will enable us to maintain our currently planned operations through 2015. Future capital requirements will be substantial, and if our capital resources are insufficient to meet future capital requirements, we will need to raise additional capital to fund our operations, including ZFP Therapeutic development activities, through equity or debt financing. We regularly consider fund raising opportunities and may decide, from time to time, to raise capital based on various factors, including market conditions and our plans of operation. Additional capital may not be available on terms acceptable to us, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business and our ability to develop our technology and our ZFP Therapeutic products would be harmed. Furthermore, any sales of additional equity securities may result in dilution to our stockholders, and any debt financing may include covenants that restrict our business.

Our future capital requirements will depend on many factors and are not limited to the following:

• the initiation, progress, timing and completion of clinical trials for our product candidates;


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• the outcome, timing and cost of regulatory approvals;

• the success of our collaboration with Shire, Biogen and other partners;

• delays that may be caused by changing regulatory requirements;

• the number of product candidates that we pursue;

• the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

• the timing and terms of future in-licensing and out-licensing transactions;

• the cost of procuring clinical and commercial supplies of our product candidates;

• the extent to which we acquire or invest in businesses, products or technologies; and

• the costs of litigation.

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